Asset Structure And Firm Life Cycle

Assets structure is the result of company's capital allocation, which covers the entire process of the allocation and operation of funds. It reflects the productivity of a company. Given the assets' size, the more appropriate the assets structure of a company, the less productive elements are left unused, and hence the larger complicated productivity a company realized, which increases firm's operating efficiency. By this logic, it is necessary for the firms to maintain appropriate assets structure in daily operating and circulation.In the theory of firm life cycle, it is regarded that firms will undergo several phases such as introduction, growth, mature, and decline. There are differences in both the internal and external of the firm during different phases of the business life cycle. To make rational decisions, managers should take these differences into consideration. Theoretically, to support the company's strategy, it is necessary to apply different assets structure in different phases of firm life cycle.However, in practice, did firms take different assets structure in different phases of Firm life cycle? This is a question that would be discussed. The paper challenges to discuss the relationship between assets structure and firm lifecycle from business lifecycle points of view. Using both the ratio of current assets and the ratio of fixed assets as proxies of assets structure, the Dickinson's method is implemented to identify the business life cycle of a firm. The research sample covers firms that are listed in Shanghai and Shenzhen A share from 1998 to 2006.The empirical results confirm that assets structure is affected by the business life cycle. There is a pattern of assets structure of the listed firms in China market during the firm lifecycle. The ratio of fixed assets increases when a firm enters maturity from introduction. It reaches the peak in maturity and then declines, which pictures a reverse U-shape. Reverse pattern can be seen in the ratio of current assets, which pictures a U-shape.